When saving, a variable rate refers to an interest rate that is subject to change over time.
Unlike a fixed rate, which remains constant for a specified period, a variable rate can fluctuate in response to market conditions or decisions taken by a bank.
Variable Rate Example:
For example, let's say you open a savings account with a variable interest rate of 4%.
This means that the interest rate on your savings may go up or down in the future, depending on various factors such as economic conditions or decisions made by the bank.
If the interest rate increases, you will earn a higher return on your savings. Conversely, if the interest rate decreases, your earnings will decrease as well.
Variable rate accounts offer the potential for higher returns when interest rates rise, but they also come with the possibility of lower returns when rates fall.